BIMCO: Dry Bulk Shipping Outlook

Freight rates down from multi-year highs as the
market fundamentals make themselves felt.

The fundamental balance in the market has worsened in 2019 with
supply growth outstripping demand, and BIMCO expects that this
will continue into 2020.

Demand drivers and freight rates
After peaking in September, the fundamentals of the market have
begun to drag on freight rates - although the rates remain above
the average experienced so far this year, buoyed by a handful of
positive developments during Q3.

For only the third time this year, monthly Brazilian iron ore
exports exceeded 30m tonnes, with 31.2m tonnes exported in
October. In 2018, this export level was reached in nine of the 12
months. Indications from Vale suggest that exports may face
renewed pressure through to the end of the year, Although after
falling to zero at the start of November, the number of spot
cargoes being reported has increased.

Despite rumored breakthroughs in trade talks, BIMCO expects that
exports in the main US soya bean season will continue to be lower
than those in previous seasons unaffected by the trade war. This
is not only because of these tensions, but also due to the
massive culling of pigs in China in response to the African swine
flu. This has led to 41% fewer pigs in China than at the same
time last year, dramatically cutting the country's demand for
soya beans. Furthermore, Chinese buyers have continued purchasing
Brazilian soya beans, which is unusual, at a time when they would
usually be importing from the US.

Fleet news
Dry bulk fleet growth in 2019 is already higher than it has been
in any year since 2014. It is currently standing at 3.5%, and
BIMCO expects it to rise to 4.1% by the end of the year. This is
based on the expectation that a further 6m deadweight tonnage
(DWT) will be delivered between mid-November and the end of the
year, adding to the 36m DWT already delivered, and 0.9m will be
demolished. This would bump the total demolition up to 7 million
DWT.

Outlook
While earnings have remained at healthy levels moving into Q4,
this has little to do with the market fundamentals. Instead, it
is a continuation from the high freight rates seen in Q3, where a
positive demand shock saved them from the doldrums they had
experienced in the first half of the year.

The swing factor remains Chinese coal imports, which have grown
by 9.6% in the first 10 months of the year. While this growth is
expected to continue into the last two months of the year, policy
decisions in China could have a large impact. Imports were curbed
at the end of last year, as a result of domestic policies aimed
at reducing emissions. This meant Chinese coal imports fell from
June through to December, with imports in December 2018 dropping
to less than half of those in the same month in 2017.

The fundamental balance in the market has worsened in 2019 with
supply growth outpacing that of demand. BIMCO expects that this
will continue into 2020 and the fleet to grow by around 3%. This
will do nothing to help shipowners pass on the additional costs
of the looming IMO 2020 sulphur cap, which is set to add even
more pressure to already struggling bottom lines.

It remains unclear whether the high freight rates in Q3 were due
to delayed cargoes from Q1 appearing on the market, or the
pushing forward of Q4 cargoes. BIMCO expects the former, but
fears that if the latter is to blame, then freight rates will
continue to fall in the last quarter.